In an adjustable-rate mortgage (ARM), the interest rate is generally fixed for a short period of time, after which it is periodically adjusted up or down to a reference market rate. Adjustable rates transfer the interest rate risk from the lender to the borrower, which normally makes the initial interest rate lower than for an otherwise comparable fixed rate mortgage loan having the same maturity.
In a fixed-rate mortgage (FRM), the interest rate remains fixed for the life of the loan. Borrowers choose fixed-rate mortgages because they provide for stable payments throughout the loan term, while exposing them to unfavourable changes in interest rates.
Because they are inherently riskier, rates on commercial property mortgage are generally higher than residential mortgage rates. Also, mortgages for non-owner-occupied properties typically will have yet a higher interest rate than those for owner-occupied properties.
The term greatly affects the rate on mortgages. The term of a mortgage is the date when the loan is due to be fully paid off, as specified in the mortgage loan agreement. Where the term of a commercial mortgage for stabilized commercial properties with established cash flows is generally between five and ten years, the term for newly developed properties or properties undergoing renovation or repositioning (“properties in transition”) is generally between one and three years.